EX 12-11 Admitting new partners who buy an interest and contribute assets
The capital accounts of Jonathan Faber and Faheem Ahmad have balances of $150,000 and $110,000, respectively. Lauren Wells and Rachel Lee are to be admitted to the partnership. Wells buys one-fifth of Faber’s interest for $35,000 and one-fourth of Ahmad’s interest for $25,000. Lee contributes $70,000 cash to the partnership, for which she is to receive an ownership equity of $70,000.
a. Journalize the entries to record the admission of (1) Wells and (2) Lee.
b. What are the capital balances of each partner after the admission of the new partners?
Answer:

a. (1) Jonathan Faber, Capital (20% × $150,000)............ 30,000 Faheem Ahmad, Capital (25% × $110,000)............ 27,500 Lauren Wells, Capital........................................ 57,500 (2) Cash......................................................................... 70,000 Rachel Lee, Capital............................................ 70,000
b. Jonathan Faber ($150,000 – $30,000)........................... 120,000 Faheem Ahmad ($110,000 – $27,500)........................... 82,500 Lauren Wells.................................................................. 57,500 Rachel Lee...................................................................... 70,000
a. Journalize the entries to record the admission of (1) Wells and (2) Lee.
b. What are the capital balances of each partner after the admission of the new partners?
Answer:

a. (1) Jonathan Faber, Capital (20% × $150,000)............ 30,000 Faheem Ahmad, Capital (25% × $110,000)............ 27,500 Lauren Wells, Capital........................................ 57,500 (2) Cash......................................................................... 70,000 Rachel Lee, Capital............................................ 70,000
b. Jonathan Faber ($150,000 – $30,000)........................... 120,000 Faheem Ahmad ($110,000 – $27,500)........................... 82,500 Lauren Wells.................................................................. 57,500 Rachel Lee...................................................................... 70,000